What employers need to know for the new tax year
There are a number of key tax changes and employer obligations to keep in mind now we have moved into the new tax year. Here we highlight some of the important points you should know, as well as a handy timeline of deadlines to keep track of.
Annual return of expenses and benefits (forms P11D)
All employers who provide their employees or directors with benefits in kind are required to report these annually to HMRC on forms P11D.
If you have provided any benefits or reimbursed any non-business expenses, then you must complete a P11D for each relevant employee or company director, as well as a Form P11D(b) for the company. You will only be able to accurately calculate the Class 1A National Insurance contributions (NICs) due on these benefits once the forms are complete.
There are two exceptions to this. If you have chosen to pay the tax on behalf of your employees under a PAYE Settlement Agreement (PSA) and if you have chosen to voluntarily payroll benefits (see below).
Both P11D and P11D(b) forms must be submitted to HMRC by 6th July 2019 and any Class 1A NICs due must be paid by 19th July (or 22nd July if you pay electronically) thereafter. There are penalties if you miss the payment deadline or submit forms that are incorrect or incomplete.
If you think there are any relevant benefits or expenses to report for your organisation and you would like us to complete these forms for you, then please contact Yogi Dhanak.
Employment Related Securities (Form 42)
Employers are required to make an annual report to HMRC when directors or employees acquire shares in their company in a tax year.
You must use the online HMRC share schemes reporting facility to report any share-related transactions including share options provided or issued to employees or directors. The deadline for submission of Forms 42 is 6th July 2019.
This includes events such as allowing employees or directors to acquire shares at market value (i.e. even if no tax in point), where you grant or exercise share options or where you buy shares from employees at more than the market value.
Any event in relation to an Enterprise Management Incentive (EMI) share option is reported on a separate online EMI return (as detailed below).
Employment Related Securities (EMI Annual Return)
The company secretary or the person acting as the company secretary must complete an online end-of-year return on or before 6 July for each registered EMI scheme.
Where there are outstanding qualifying options and there has been activity in the tax year, some details need to be completed.
You also need to complete an online ‘nil’ return if there are no outstanding qualifying options but you have registered the scheme, or there are outstanding qualifying options but there has been no activity in the tax year.
If you think you need to submit any Forms 42 or EMI returns and you would like us to complete these forms for you, then please contact Victoria Nicoll.
Voluntary payrolling of benefits
Employers can process benefits in kind through the payroll, provided of course that tax and NICs are also paid via the payroll. Although P11D reporting is reduced, it is still necessary to prepare a P11D(b) form to account for the Class 1A National Insurance contributions that arise from these benefits.
The types of benefits suitable for payrolling include company cars, private medical, taxable subscriptions and taxable fuel benefits. If you pay any non-qualifying expenses or benefits, you will have to report these on a P11D form for every relevant employee or director. Rates and thresholds for employers 2019/20
If you are considering registering to voluntarily payroll benefits, now is a good time to start weighing-up the pros and cons as you will need to register before the start of the next tax year.
Salary sacrifice arrangements (Optional Remuneration Arrangements – OpRA)
Changes to the tax rules on salary sacrifice and other similar arrangements in 2017 took away the tax and Employer’s NIC advantages of the provision of many non-taxable (or tax advantaged) benefits, in lieu of taxable salary.
All salary sacrifice and other arrangements which allow employees to swap cash for benefits made after 6 April 2017 are subject to the OpRA legislation. This ensures that employees pay income tax on the higher value of the taxable benefit, or the cash given up in lieu. Employers are subject to the same rules in respect of Employer’s NIC.
Some exemptions remain however, including employer pension contributions, pension advice, cycle to work schemes and low emission company cars.
If you are using a salary sacrifice scheme, we recommend you check your arrangements are in line with the relevant rules. Some arrangements made prior to the introduction of OpRA will follow the rules in place at the time.
Termination payment changes
PAYE and NIC should be applied in full to both contractual and non-contractual payments in lieu of notice (PILONs) paid on or after 6 April 2018. Foreign service relief has also been abolished (except for seafarers). This means the tax and NICs rules are the same for almost everyone, regardless of their contract or the structure of their termination payments.
Whilst this looks like a simplification, it brings additional complications to the calculation of termination payments when employees leave without working their full notice period.
Employers should check that their payroll system or services are fully equipped to carry out the new calculations correctly.
The proposed employer’s NIC charge on the element of a termination package in excess of £30,000 has however been delayed until April 2020.
Most businesses are entitled to an annual employment allowance. This covers the first £3,000 of employers’ NICs each year.
The employment allowance is to be restricted from April 2020 to those smaller organisations with an NIC bill below £100,000 in the previous tax year.
You can check if your business qualifies by asking your tax adviser or by reviewing the HMRC Eligibility of Employment Allowance: Further employer guidance.
If you are eligible for the allowance and haven’t already claimed it, you can apply for repayment from HMRC within 4 years of the end of the tax year concerned.
Larger employees are liable to pay the apprenticeship levy. Only employers who have an annual ‘pay bill’ (that is all payments to employees that are subject to Class 1 secondary NICs) that exceeds £3 million per year are liable. The levy rate is 0.5% of your annual pay bill.
Pensions and auto enrolment
By now, employers should have increased their minimum auto enrolment contribution as outlined in our recent article, ‘Further increases to auto enrolment minimum contributions’.
Employees still have the option to opt-out of the scheme but must do so of their own free will.
National Minimum Wage/National Living Wage
Both National Minimum Wage and National Living Wage rates increased in April 2019.
As HMRC’s automatic public naming and shaming policy continues, it is more important than ever to ensure your employees are receiving the correct amount of pay. Failure to do so could lead to reputational damage and significant financial penalties as highlighted in our recent article, ‘Over 600 businesses caught out by minimum wage rules.’
It is important to remember that the majority of cases where employers have been named as defaulters for NMW purposes have been the result of an error or misunderstanding of the rules. Unfortunately, this does not exempt employers from being included within the naming scheme.
For help and advice on your payroll obligations as an employer, please contact Susan Elsdon.